Cap

State lawmakers have approved a series of modest changes intended to bolster California’s film and TV tax credit program.

Among the key revisions, independent filmmakers would be exempted from the $5 million state corporate tax credit cap that was approved earlier this year as part of Gov. Gavin Newsom’s state budget.

Film industry advocates lobbied hard for a carve-out, saying the cap would undercut gains made under the current film and TV tax credit program at a time when Hollywood has been reeling from job losses.

The exemption is a compromise. Film industry advocates were hoping all types of producers would be exempt from the corporate tax cap.

The bill includes other changes intended to help Hollywood, such as allowing companies to carry forward older tax credits for up to 15 years (the old limit was nine) and reducing the discount they are charged when they opt to seek a cash refund on unused credits.

Producers will also be able to collect their refund money more quickly — within two years instead of five.

California offers tax credits of up to 35% on qualified expenses, which can be applied to any tax liabilities the production companies have in the state. The program allocates $750 million annually in film and TV tax breaks.

The budget trailer bill was introduced to the Senate on Friday by Assemblyman Rick Chavez Zbur (D-Los Angeles), chair of the Assembly Democratic Caucus and Senator Ben Allen (D-Santa Monica).

The new cap, issued by Gov. Newsom, would have undermined the “competitiveness” of the current California Film and Television Jobs Program, said the Entertainment Union Coalition, an advocacy group that supports the bill. But with these new modifications, the group — which represents the Directors Guild, SAG-AFTRA, IATSE and more — said the program will be able to continue to “support the fragile recovery of our industry here in California.”

“Most importantly, we want to recognize the major role our members played in today’s success as advocates for their industry in California,” Rebecca Rhine, the coalition’s president, said in a statement. “They sent an unprecedented 450,000 letters to the California legislature, making clear the negative impact that SB 122 [the new cap] would have on their livelihoods, their families, and their communities.”

Over the program’s first full year in its expanded $750-million form, the California Film Commission says it delivered $6.6 billion in direct production spending and $4.3 billion in qualified expenditures, supporting nearly 35,000 cast and crew jobs across 6,630 filming days statewide.

The bill cleared the Assembly floor by a vote of 68-2, with the Senate approving its companion measure by a vote of 32 in favor, 8 against the same day. It now awaits Gov. Newsom’s signature.

“It’s a good day that we took steps to strengthen the program and while we have to do more next year, this was a crucial first step,” Zbur said in an interview.

Zbur said he believes everyone in the state’s film and TV tax credit program should have been exempted from the corporate tax credit cap and he plans to look at that within the context of next year’s budget.

“There were budget implications to doing that, so we really did all the things that are viable to do in this legislative session,” Zbur said.

The head of one of Hollywood’s largest talent agencies warned state leaders that a new budget bill threatens job gains from California’s film and TV credit program.

Legislators earlier this year passed a provision in the state budget that extends limitations on corporate tax credits, including a $5-million state tax credit cap each year.

But film industry advocates say the corporate tax credit cap will hurt film producers and undercut the effectiveness of the state’s expanded film and TV tax credits.

Lawmakers more than doubled annual funding for the program last year to $750 million in an effort to boost jobs and stem the exodus of film work from California.

CAA Chief Executive Bryan Lourd called for state leaders to create an exemption for tax credits earned under the expanded film and TV program.

“Without this fix, we risk destabilizing a program that is critical to keeping film and television production in California and the thousands of jobs it supports,” Lourd wrote in an Aug. 11 letter to Gov. Gavin Newsom, California State Assembly Speaker Robert Rivas (D-Hollister) and President Pro Tempore Monique Limón (D-Santa Barbara).

“California must make itself competitive with the rest of the country and the world if it hopes to have a thriving entertainment ecosystem,” Lourd wrote. “Honoring commitments that have already been made to the entertainment industry is an essential step in achieving that goal.”

Film industry advocates expected producers would be exempted from the tax credit cap.

“It’s a reversal of California economic policy as it relates to the entertainment industry in an unhelpful and uncompetitive direction,” said Hilary Krane, CAA’s chief legal officer, in an interview. . “It undermines people’s ability to plan for the economics of the program because they all counted on a certain amount coming in under the previous rules that they were entitled to and had, but now can’t use.”

Last month, more than three dozen California lawmakers signed a letter calling attention to the issue. Hollywood unions also have raised alarm.

“The result of the changes is that production companies will lose the full value of credits already earned in exchange for creating middle-class entertainment industry jobs and other economic benefits to the State,” the Entertainment Union Coalition said last month.

Nick Miller, Rivas’ spokesperson, said the state Assembly is taking a hard look at the issue.

“Our lawmakers strengthened California’s film and TV jobs program last year and will keep fighting for creative industry workers,” Miller said in an email.

Newsom’s office did not immediately return a request for comment.

Time is running out for a fix to happen this session, which ends in less than two weeks.

State Assemblymember Rick Chavez Zbur (D-Los Angeles) said state leaders are working on introducing legislation soon to address the issue.

Already, tens of thousands of jobs have come back to Southern California due to the modernization of the film and TV tax credit program, he said.

“We just saw the beginning of that resurgence and we don’t want to nip that in the bud,” Zbur said in an interview.